Budget: food to remain zero-rated

The standard rate of VAT will increase from 17.5% to 20% from 4 January 2011, announced chancellor George Osborne in his first Budget earlier today, but zero-rating for most food remains in place.

The government said the British economy had been too reliant on growth from a limited number of sectors and regions. “This Budget is the first step in transforming the economy and paving the way for sustainable, private sector led growth, balanced across regions and industries,” according to the Budget document.

Food & Drink Federation director general Melanie Leech commented: “No one welcomes spending cuts or tax increases for their own sake. But we are relieved that the chancellor has confirmed that most foods will continue to be zero-rated for the life of this Parliament.”

Other headline announcements include the increase in reduction in the main rate of corporation tax from 28% to 24% over the course of four financial years from April 2011.

"Generally the measures could have been a lot more severe, however it will take a few days to work out the true impact of today's budget," commented Mike Holling, chairman, National Association of Master Bakers.

"Many retailers had predicted the VAT increase; the positive news was that the chancellor did not extend VAT to other food items, that move would have a major impact on the NAMB membership. We also welcome the reversal in the planned increase in the employer national insurance contributions," he added.

Federation of Bakers director Gordon Polson said the fact that food remains zero rated for VAT is obviously good news, and that the reduction in corporation tax was a welcome announcement. “We’re all prepared for tough times, and consumers’ budgets are going to be constrained, but we’ll continue to survive and produce good value bread.”

Funding for small businesses will be increased through the Enterprise Finance Guarantee (EFG). The facility for this year will be increased by £200 million to support additional lending of up to £700 million for small businesses until 31 March 2011.

There was a reversal of “the most damaging part of the planned increase in employer National Insurance Contributions”, with the threshold to be raised by £21 above indexation by April 2011.

The personal tax allowance for employees under 65 will be increased by £1,000 in April 2011; and the government has also announced it will introduce a levy based on banks’ balance sheets from 1 January 2011, to encourage less risky funding profiles, while it also plans to take action on bank bonuses.

A 1% cut to small companies’ tax, the new £5 million threshold for entrepreneurs’ relief on CGT and measures to reduce some National Insurance liabilities were welcomed by The Forum of Private Business.

It also welcomed the pledge of a wholesale review of employment law. However, it expressed concern at the failure to confirm the creation of the Conservatives’ pre-election ‘fuel price stabilizer’.

A spokesperson for the British Small Shops Association said there was much that will appeal to small businesses in this Budget, especially as they have been expecting the worst: "Cutting corporation tax, capital gains tax changes, particularly the increase in the entrepreneurs' relief limit to £5m, National Insurance support for new businesses outside London and increases in personal allowances will all receive a warm welcome from retailers..

"On the other hand, 77% of the real Budget still has to be detailed (in the public sector spending round and the reviews of pensions) with departments of government facing budget cuts of 25%, so there is a lot of bad news yet to come. Given the axe that is to be taken to government itself the only thing that rings false in the Chancellor's predictions is that unemployment will peak this year and then begin to fall through the period until 2015."

The future role of regional development agencies was also not addressed in the budget, said The Regional Food Group for Yorkshire and Humber chief executive, Jonathan Knight.

He said: “There has been no clarity on the specific support to businesses in the region, besides the creation of a Regional Growth Fund from 2011, and some loud hints that RDAs will need to transform into some form of Local Enterprise Partnerships in order to continue their business development functions-this detail is eagerly awaited."